Can you partition trust property?

Underwood-Blog-Images-1-1-300x300In California, property subject to a trust can be partitioned, though with some additional wrinkles to the regular partition process. Because trusts can often involve successive estates with future and present property interests, litigants should take care to understand the law regarding trusts before beginning such an action. 

At Underwood Law Firm, our attorneys are more than familiar with partitions and the complexities such lawsuits can entail, particularly when trusts are involved. With our attorneys at your side, you can be sure that we will best assist you in achieving your litigation objectives. 

What is trust property? 

Trusts are a special type of legal device (usually one used for estate planning) that allows for an asset, like property, to be held and transferred. The “trustor” is the individual who creates the trust and places the asset into the trust for a specific purpose. 

Commonly, parents who own a home will be the “trustors” that place their property into the trust for the benefit of their children so that the house will be passed to them upon death. The children in this example are the “beneficiaries.” They are the ones who receive the trust assets upon the occurrence of a condition or conditions. 

Lastly, there is the “trustee.” Trustees are those individuals who manage the trust and ensure it’s being carried out according to the trustor’s wishes. Those wishes are typically codified into a writing called a trust agreement that all parties to the trust must abide by. 

Why does trust property complicate partition actions? 

Partitions are lawsuits that split up the property between multiple co-owners so that each can take their equity out of the home. The prototypical partition is that between unmarried partners or business partners. Both own equal shares, but only one wants to end the relationship and take their money out. Partitions enable this to happen, usually ending with a court-ordered sale of the subject property. 

The presence of a trust changes this calculus. This is because a trustee typically holds the property for the benefit of another. (Estate of Yool (2007) 151 Cal.App.4th 867, 874.) If this is the case, then successive (rather than concurrent) property interests may be involved, and the right to partition will only be upheld if it’s in the best interest of the parties. (CCP § 872.710.) 

Do courts have the ability to partition property subject to trust? 

Yes. The partitions statutes touch directly on the court’s jurisdiction when trust property is involved in the litigation. According to Code of Civil Procedure section 872.840, “where a property or an interest therein is subject to an express trust, the court may, in its discretion, order that the property be sold.” 

This statute allows the court to proceed with a partition action and even order its sale or division, provided that it is feasible and equitable to do. Put another way; this section gives the court the power to use its sound discretion in determining whether, under all the facts and all the evidence, the property should be partitioned. (Richmond v. Dofflemyer (1980) 105 Cal.App.3d 745, 758.) 

The court needs this discretionary power because, unlike regular partitions, trust property usually brings with it the likely potential for additional lawsuits. For instance, if a property is physically divided, but one of the portions is held in trust, there’s a chance that the trust beneficiaries might bring a further partition action to divide up the allotted portion. 

In situations like the above, the court must be able to consider ordering a sale of the whole property, despite its ability to physically divide the land, to finally settle the matter. Of course, just because those facts are present does not mean the court will always order a sale. The court’s power is discretionary precisely because the facts and circumstances of each individual case involving trust property need to be taken into account. 

What happens to the trust property once the partition is completed? 

Once the trust property is partitioned, the property or the proceeds from the sale are allotted to the trustee of the trust so that they can hold the proceeds or property upon the trust. In other words, because the trust already exists, the court simply places the funds or land back into the trust so they can be distributed at a later time. 

Interestingly, the court has the authority to do this even when a trust does not already exist. When successive estates are involved in a partition (some of the property owners hold “future” interests in the property), the court can create a trust for depositing the sales proceeds. (CCP § 873.840 (c).) 

This process, however, is far more complicated because the court has to retain jurisdiction over the trust and appoint a trustee over whom the court needs to supervise to ensure they’re investing and re-investing the sales proceeds. (Id.) But, when a trust already exists, none of these further actions are necessary. 

Can a trustee bring a partition action? 

Under the predecessor partition statutes, a trustee could file a partition suit, but only if they were also a co-owner of the property. (O’Bryant v. Bosserman (1949) 94 Cal.App.2d 353, 355.) While this is still the case, the partition statutes have been broadened to give the court fairly broad discretion in the case of successive estates. (CCP § 872.710 (c).) 

Thus, a beneficiary or trustee could both theoretically file a partition action but would nonetheless need to demonstrate that it was in the best interest of all the parties. 

How can the Attorneys at Underwood Law Assist You? 

Partitions are fairly common in California, particularly among unmarried couples and business partners. But the existence of a trust associated with the property can cause additional headaches to first-time litigants. Partitions are already emotional procedures, and the time, money, and legalese associated with getting them started can be a significant barrier to exercising one’s property rights. 

As each case is unique, property owners would be well-served to seek experienced counsel familiar with the ins and outs of partitions and co-ownership. At Underwood Law, our knowledgeable attorneys are here to help. If you are concerned about facing a partition action, if you’re interested in seeking one yourself, or if you just have questions, please do not hesitate to contact our office. 

Learn more here.

 

 

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